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[Belt and Road Financial Cooperation Practice Case] Grameen China: CCB-Grameen Rural Rejuvenation Project

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Editor's note: In order to systematically study the financial cooperation practice of the BRI, promote experience exchanges and business cooperation in the financial sector, and better introduce the excellent cases of financial cooperation, Asian Financial Cooperation Association (AFCA), on the basis of Belt and Road Financial Cooperation Committee (BRFCC), conducts Asian Financial Cooperation Association Belt and Road Financial Cooperation Practice Report. The appendix of the report selects 40 Belt and Road Financial Cooperation Practice Cases, including credit support, equity financing, bond issuance, insurance services, payment and settlement, risk management, inclusive finance, investment and financing platform, and epidemic prevention and control. The rich cases not only show the business achievements of AFCA members and relevant institutions under the BRI framework in recent years, but also reflect the new changes of the BRI financial cooperation practice.

Grameen China: CCB-Grameen Rural Rejuvenation Project

Abstract: Grameen China follows the technical methods of “microfinance, five-member groups, weekly meetings, membership covenants, and self-help and mutual assistance”, with the support of “a profound understanding of the social links of the poor and the creation of social capital”, relying on state-owned financial institutions, contacting local governments and recognizing women (families) as the center of the project. Furthermore, with empowering inclusive finance as the entry point and the village regulations conforming to the core values of socialism as the conventions, it brings economic and social factors such as capital, information, technology, folk custom, and trust into rural areas by depending on cooperatives and Grameen’s ideas, technologies, systems, and methods. All these are aimed to enhance various abilities of women including self-control, self-discipline, planning, financial management, linkage, psychological construction, spiritual growth, and business management, ensure the sustainable self-growth of low-income women, thus achieving the dual goals of relative poverty resolution and social governance in the context of rural revitalization.

I. Analysis of Background and Financial Requirement

i. Grameen model and the financial requirement from the low-income women in China

1. The development of Grameen model in China

Grameen China was founded by Professor Yunus, a Nobel Peace Prize winner, Bengali economist and the founder of Grameen Bank. He launched Grameen China officially when visiting Lukou Village in Jiangsu Province, China, in December 2014.

Currently, Grameen China has cooperated with CCB, having nine partner institutions in Ankang, Shaanxi Province, Lankao, Henan Province, and Shenzhen, Guangdong Province. It carries out women entrepreneurship loan programs following the core Grameen model and combining the requirements of CCB and relevant local governments.

2. The demands and dilemma of low-income female groups in China for microcredit

Low-income women living in rural and urban areas, excluded from the mainstream financial system for a long term, lack basic financial knowledge and the collateral or guarantor necessary to obtain loans, so they have no access to loans from formal financial institutions or ability to repay them. Many of them have the desire and ability to alleviate poverty, but the shortage of start-up capital has prevented them from improving their poverty status for a long time.

This group urgently needs a low-interest loan without collateral or guarantors, as well as some training of basic financial knowledge to learn about loans, savings, and credit history building.

ii. The cooperation between Grameen model and BRI inclusive finance

To promote the BRI cooperation in inclusive finance, AFCA established the Financial Inclusion Cooperation Committee in 2019 with its office in Grameen Bank in Bangladesh. After the establishment of the Committee, it has strongly promoted the BRI cooperation in inclusive finance. Even though the COVID-19 pandemic has affected the cooperation, it has not stopped this year.

On July 2, 2020, Boao Forum for Asia (BFA) and the AFCA jointly organized an online roundtable on “Ecosystem Building and Digital Development of Financial Inclusion in Asia”. BFA Vice Chairman Zhou Xiaochuan delivered a keynote speech at the conference; Tian Guoli, AFCA Chairman and Chairman of the BoD of the CCB, delivered a speech at the conference; and Professor Yunus, Nobel Peace Prize laureate and the founder of Grameen Bank, participated in the discussion on deepening the development of inclusive financial cooperation. He emphasized that in the post-pandemic era, BRI countries and regions should focus on developing rural economies, building administrative, financial and social support systems for rural economies, and establishing rural micro-entrepreneurial banks with a social enterprise structure, so that they will no longer become subordinate to urban economies. It coincides with China’s rural revitalization strategy.

II. Initiatives and Highlights

i. Basic operating model of Grameen China

Grameen China follows the technical approach of “microfinance, five-member groups, weekly meetings, membership covenants, and self-help and mutual assistance”, leverages “a profound understanding of the social links of the poor and the creation of social capital” to address the relative poverty of Chinese women (families) through empowering inclusive finance in cooperation with the government and banks, thus exploring a new model of social governance in the context of rural revitalization.

ii. CCB—Grameen Rural Rejuvenation Project in Ankang, Shaanxi Province

Among the cooperation projects launched by Grameen China, the “CCB—Grameen Rural Rejuvenation Project” promote by Yunus in cooperation with Construction Bank is a quintessence.

On July 5, 2019, Gao Zhan, Chairman of Yunus Foundation and President of Grameen China, and Farid Uddin, General Manager of Inclusive Finance Department of Grameen China, led the Grameen China project execution team to Shaanxi Province, Ankang City, to set up a project site office in the Ankang Hanbin District Branch of China Construction Bank, and officially launched the cooperation project between Grameen China and China Construction Bank in Ankang City. After operation for more than a year, the Ankang project of Grameen is progressing smoothly and has achieved good social reactions.

The smooth implementation of the project is mainly due to the following three factors:

First, the Ankang Municipal Party Committee and Municipal Government as well as the Women’s Federation and other organizations took the project as a key of rural revitalization and poverty alleviation, giving it high attention and assistance. The chief responsible comrades of the Municipal Party Committee and the Provincial Women’s Federation visited the Grameen project site for research many times.

Second, CCB advances inclusive finance strategy, leading the way in enabling inclusive finance. Especially when the initial investment of the project was large and the effect was slow to take, decision makers placed the value system of “social investment” on top of business indicators such as cost-effectiveness with a long-term strategic vision and a high sense of social responsibility.

Third, Grameen’s philosophy and technology have been proven effective in more than 40 countries around the world, so China should be no exception. The Grameen team has developed the dense network of relationships needed to build communities as a “resource that can be exhausted or accumulated, invested efficiently or wasted”, while social capital refers to the expectation of trust and reciprocity (Harvard Professor Robert Putnam).

Based on the above three conditions, the Ankang model has initially emerged, namely: relying on state-owned financial institutions, contacting local governments and recognizing women (families) as the center of the project. Furthermore, with empowering inclusive finance as the entry point and the village regulations conforming to the core values of socialism as the conventions, it brings economic and social factors such as capital, information, technology, folk custom, and trust into rural areas by depending on cooperatives and Grameen’s ideas, technologies, systems, and methods. All these are aimed to enhance various abilities of women including self-control, self-discipline, planning, financial management, linkage, psychological construction, spiritual growth, and business management, ensure the sustainable self-growth of low-income women, thus achieving the dual goals of relative poverty resolution and social governance in the context of rural revitalization. See the figure:

 

III. Achievements and Influence

After more than one year of operation, two sites of Grameen Ankang project have formed 43 five-member groups and issued microcredits totaled more than 6 million RMB to 215 low-income women with 100% loan repayment rate. Also, the project cooperated with the municipal women’s federation in Minzhu town, Langao County to establish the Grameen “ingenious women cooperative” which absorbed more than 1,000 members in two months. Though we cannot say that business support this year has significantly changed their lives, at least their outlook has changed dramatically.

They were always punctual to attend the weekly group meetings for being late would exclude them to get loans, so this kept them disciplined; they always worn their best clothes whether at a meeting or in a public event of the cooperative, which made them more self-respecting; in the large on-site meetings, those who have never spoken in front of people can bravely go to the podium, which increased their self-confidence little by little; in the large center meetings, they told their stories, listened to others’ deeds, shared all kinds of information and answered all kinds of questions under the guidance of the facilitator, which enabled them to be warm and to support each other.

At the training session before the loan disbursement, each of them was inspired by the manager of Grameen Center to find their own strengths, to discover and position themselves. In the pre-start-up sharing session, they used simple input-output analysis techniques to learn how to plan for the future, whether it was applied raising a goat or planting an acre of land. In their weekly repayments, they were required to save even a single dollar. This required action got them into the habit of saving and even managing their money. At every meeting or activity, the six conventions they know by heart allowed them to naturally take responsibility for their own health, children’s education, the natural environment, group discipline, etc.

IV. Difficulties, Experience Summary and Policy Suggestions

i. Success factors of the Grameen model

1. Theoretical perspective

The seemingly simple links of “five-member group, central meeting, and six conventions” have achieved the miracle of “40 years, more than 40 countries, 20 million families, and 99% repayment rate” of Grameen. That has become an inexhaustible motivation for experts and scholars to study it, with the Grameen model being studied and analyzed by several winners of Nobel Prize in Economic Sciences.

“The famed Grameen is successful because of the frequency of repayment and social interactions, as social interactions create social capital and trust.” (Abhijit Banerje, Esther Duflo and Michael Kremer, 2019 Nobel Laureates in Economic Sciences)

“Finance, at its best, does not merely manage risk, but also acts as the steward of society’s assets and an advocate of its deepest goals. Grameen Bank has set the example.” (Robert Shiller, 2013 Nobel Laureate in Economic Sciences)

“The Grameen Bank has helped low-income groups develop a concept of mental accounts and, most importantly, self-control. It assumes that people will also keep accounts in their minds in order to achieve certain goals, which leads to behavior benefiting individuals and society.” (Richard Taylor, 2017 Nobel Laureate in Economic Sciences)

2. Practical level

In addition to the core role played by the CCB and the Women’s Federation, the meticulous work of Grameen employees enables Grameen members to communicate in good faith, pass on warmth, share responsibilities, smile together, talk to support, rely on each other and son. To achieve this effect, they have to strictly follow the method of the “five-member group, central meeting”, representing also as the trust and confidence formed by empowering inclusive finance as the entry point. This shows that trust and confidence will ultimately be the fulcrum to move the earth.

“Behind every member of the community, there is a story worth writing. There is something that makes us feel good, something that makes us feel pain or sympathy, something that makes us feel moved or lamented, but there is no one that we can’t do anything about as long as they are in the cooperative.” said by Grameen’s leader for forming the cooperative leader, “As long as they experience ‘I can’ and ‘I want,’ they remain open, sustaining the power to experience new possibilities.”

3. Innovative perspective

Cooperation is an advanced property of man as a social species, with cooperation of the poor being the first step to get rid of plight. Grameen Bank, a large cooperative itself, depends on a good cooperative organization for its function. Since Grameen China does not have a banking license, they followed Grameen’s philosophy and theory to created and incubate the cooperative, which proved to play an important role in the progress of the project.

Cooperatives and five-member groups are mutually reinforcing, with five-member groups serving as the spiritual inspiration for real cooperation and cooperatives the visionary confidence for future development. The core functions of cooperation can be realized through the formation of cooperatives, namely cooperation forming contracts to promote honesty; cooperation can facilitate the introduction of conventions and fuel the absorption and widespread use of the six conventions, effectively strengthening social governance.

According to psychology, the more one is capable of influencing the relevant events in life, the more one is able to shape the ego in line with one’s preferences. Conversely, the inability to influence events has a negative impact on life, breeding fear, apathy and despair. The project gives them self-control, participation and mastery through participation, so this is what makes the project, or the cooperative, so effective for social governance. This is perhaps the purpose of “developing diverse forms of cooperatives,” as President Xi Jinping has emphasized during his visits to agricultural and rural areas.

ii. Suggestions on future development and application of Grameen model

The Grameen model is a system that meets the needs of the current situation and the goals of the future, so it is recommended that regions and institutions with favorable conditions could consider conducting pilot projects.

First, the policies of “stability on the six fronts and security in the six areas”, initiated by the central government, with individual lives being taken care of at its core, ensure people’s food problem to be worked out. Thus, the low-income group is naturally the top priority, manifesting the bottom-line thinking. The Grameen model of inclusive finance is a quintessence of financial and social assistance.

Second, the domestic cyclic economy, being explored in response to the international situation, requires job security, income stability and increased consumption. Therefore, the Grameen model of inclusive finance not only protects the employment and entrepreneurship of low-income female groups, but also educates and trains practitioners of financial institution to make financial inclusion a reality, truly empowering MSMEs and disadvantaged groups.

Third, to consolidate the results of poverty alleviation and safeguard the accomplishment of rural revitalization. Solving relative poverty, preserving the results of poverty eradication and achieving rural revitalization are the core of building a high-quality moderately prosperous society, concerning critically to China’s future comprehensive economic and social development, and serving as the key to the great rejuvenation of the Chinese nation. The Grameen model is able to ensure the low-income group to embark on a path of sustainable self-growth, and guarantee the elimination rather poverty returning, thus solving the problem of relative poverty. Meanwhile, the elements required for rural revitalization, such as revitalization of human resources, ecology, and organizations, can be simultaneously attained.

It may take some time to observe whether the Grameen project is ready for rapid replication. However, each state-owned financial institution can undertake one or two projects on the basis of balancing market competitiveness and social responsibility, and form a number of innovative models similar to the Ankang model that meet local needs throughout the country.

Of course, the Grameen model deserves to be studied and promoted in the long run, regardless of the long-term social development goals to consider the development of the financial industry alone, because empowering inclusive finance is an important tool to avoid financial risks in the long run and a major initiative to promote the long-term healthy and hierarchical development of the financial industry.

“The desire to get rich at all costs, the addiction to commerce, the pursuit of material gain and enjoyment, all became the most widespread sentiment, and it soon led to the depression of the whole nation.” The social problems reflected in the previous financial chaos gave us a glimpse of the pre-Revolutionary Paris described by Tocqueville in his book The Old Regime and the Revolution in some of the worst affected areas.

After rectifying the financial chaos, we advocate empowering inclusive finance, which may lead to an unexpected change in values at all levels and even for everyone. On the one hand, it is not only financial, but also humanistic, and an important means to prevent systemic risks. On the other hand, empowering inclusive finance will allow Chinese economic and finance with rapid development to slow down in the face of uncertainties such as the epidemic, thus gaining time to build a solid foundation for moving forward.

Professor Yunus recently mentioned, “The extent of the damage that the coronavirus pandemic is causing the world is mind-boggling. The most exciting news is that the coronavirus crisis offers us almost unlimited opportunities to make a fresh start. We can start designing our hardware and software with an almost clean slate. We should not even call it a ‘recovery’ program. To make our purpose clear, we may call it a ‘reconstruction’ program.” Hoping that major financial institutions will implement the inclusive financial strategy proposed by the Party Central Committee and the State Council from the system, process, and employee thinking, so as to render the economy to be more resilient, society to be better, and life to be happier.